Why does gas cost so much?

Oil futures are back at $70 per barrel, the price when Hurricane Katrina hit. Drivers are paying an average of $2.70 a gallon for regular gasoline.

Talk about highway robbery. I really do feel like I’m being robbed every time I hop on the highway. Actually, I feel like I’m being robbed every time I hop into my car period. Why are gas price so high?

There’s a bunch of reasons why:

In order to meet summer clean-air regulations, the refiners have to reformulate their product and add additional chemicals. The added cost of course gets tacked on to the price.

Production delays which limit supplies also cause price increases. One of the chemical additives known an MTBE has recently been linked to health problems. Most states have banned it so the refiners are forced to substitute MTBE with ethanol. The problem is there might not be enough ethanol available and refiners can’t sell their gasoline without this stuff. So there are worries that until enough ethanol is available for all, supply will be limited.

And there’s more.

Remember when Hurricane Katrina and Rita demolished more than 100 oil platforms in the Gulf of Mexico and wrecked huge refineries along the Gulf Coast last summer? Well they’re still rebuilding and refining capacity is still not back to where it was prior to the hurricanes. Experts say gasoline production is still down by about 700,000 barrels a day but optimistically adds that most of the missing production will be up soon. I want to pessimistically add that hurricane season will be back again very soon as well.

Ah but we’re not done yet. There’s still more.

Prices are also rising due to increasing world demand especially from countries such as China, India, and off course the biggest oil hog of all, the United States.

The world produces about 86 million barrels a day. BUT the world consumes about 85 million barrels a day. There’s not much padding there in terms of supply and demand. What if one of the major oil-producing countries stopped producing oil?

Demand can quickly surpass supply which causes prices to skyrocket.

The sad part is that it’s happening as we speak. Some of the biggest oil producing countries like Iran, Nigeria, Venezuela, and Chad are experiencing political problems.

In Nigeria, more than 500,000 barrels a day are being blocked by violent rebels, who are threatening to block more supplies.

In Iran, the world’s fourth biggest oil pimp, no oil exports are currently being blocked, but it could be soon if the United Nations Security Council throws the hammer down by enforcing economic sanctions. Why is the U.N. being so mean? Well Iran keeps breaking U.N. rules regarding their new nuclear program. Iran says they’ll use their nukes for electricity for their citizens, but the Western nations are scurred, believing they will make nuclear weapons instead. The best way to make somebody listen is take away their livelihood which in Iran is their oil. But that would mean less oil for me and you….

Chad exports 160,000 barrels per day, but it sounds like they’ll soon be exporting 000,000 barrels per day. The oil minister of Chad is threatening to shut down a pipeline delivering oil to the international market unless a dispute with the World Bank is settled in the country’s favor. The World Bank has suspended the payments when Chad used a portion of earlier proceeds for military purposes, which violated a bilateral agreement. Let’s see who wins this arguement.

So there you have it. It’s all about supply and demand. According to Mark Zandi, chief economist for Economy.com, fears of dwindling supply add about $20 a barrel. As long as there are threats to the world’s oil supply, oil prices will remain high and most likely will continue to climb. Watch out for hurricanes and terrorist attacks.Oh and I almost forgot… the U.S. Energy Department says gas prices will be 11% higher this summer compared to last summer. I can’t wait until a gallon of regular gas costs as much as a tall Starbucks Frappuccino. Not. At least I get a gallons worth. Too bad I can’t drink oil.

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